Obama Taps Into Strategic Oil Reserve

With the flow of Libyan oil at a stalemate, the President ordered the release of 60 million barrels over the next 30 days to keep the world supply stable and gas prices from increasing.

The move was made in concert with the International Energy Agency (IEA), partly to assist countries like Italy that are highly dependent on Libyan oil. With the U.S. tapping into its strategic reserve, European nations will be able to draw more from Nigerian and Algerian crude, reports John M. Broder and Clifford Krauss.

While a press release from the Department of Energy emphasizes the worldwide benefits, it also recognizes the U.S. interest:

"As the United States enters the months of July and August, when demand is typically highest, prices remain significantly higher than they were prior to the start of the unrest in Libya."

Created in the 1970s during the Middle East oil crisis, the Strategic Petroleum Reserve is rarely tapped.

Full Story: Global Oil Reserves Tapped in Effort to Cut Cost at Pump

Comments

Comments

Isn't the reserve to be used in case the supply gets cut off?

Is the supply of oil been unexpectedly cut off due to war or a terrorist act? I don't think so. More like an attempt to lower the price of oil. It will be only a temporary drop, I think come the fall (and heating season) the price of oil will go back up.

Real goal is to discourage commodity speculation...

Many believe that commodity traders are driving up the price of oil, rather than actual supply/demand economics. What's really needed is regulation to curb such practices, but given the anti-regulation climate in Congress, this is unlikely to happen. As such, the main objective of tapping the reserve is to discourage speculators from buying oil futures on margin... as they have no real intention to purchase the commodity. They are only in the game for price appreciation. In short, the Obama administration is attempting to manipulate the behavior of speculators, whom many think are driving up the price of oil. Just sharing my thoughts on the matter...

I don't believe that is true

The primary motivation is as Dano has eluded to above - purely political. This is the only stimulus Obama has left. The Fed has exhausted all their weapons, the previous Congress and the Prez have spent all they can. This is one of the few actions he could take that could stimulate the economy - trying to further drive down the price of oil increasing disposable incomes and driving down some production costs.

In terms of speculation, I think Obama would love to influence that to make it seem like he cared, but really he has little influence on that. Margin requirements are set by the brokerage community. Speculators are just part of the deal - nobody rips on specualtors when they short oil, right? There are two sides to every trade and hedgers need somebody on the other side.

Ironically, if Obama did want to reduce the price of oil, long term, he would be more cognizant of his fiscal policies and the actions of the Fed on the value of the USD which would provide way more price reduction. Alas, that is not a good re-election campaign strategy.

Dealing With A Fragile Recovery

"The Fed has exhausted all their weapons, the previous Congress and the Prez have spent all they can. This is one of the few actions he could take that could stimulate the economy - trying to further drive down the price of oil increasing disposable incomes and driving down some production costs."

Given how fragile the recovery is, given how many people are hurting because of long-term unemployment, doesn't it make sense to do what we can to stimulate the economy in the short term?

In the long-term, we have to reduce oil consumption. But we will not get the investment in alternative energy that we need unless we begin by having a successful recovery from the worst economic crash since the Great Depression.

(Incidentally, I think this crash would have been as bad as the Great Depression if we had not had Obama's fiscal stimulus and the Fed's monetary policies to limit the damage.)

Charles Siegel

I hear you, but...

availability of uber cheap capital and $5-$10/barrell difference in the price of oil isn't going to tackle the structural employment issue.

Yes, it would have been worse without some intervention, but if those softer landing measures were at the expense of the longer term evils, I don't think it makes sense. It's the proverbial kick the can down the road.

Hopefully, there won't be a "real" major disruption in the supply of oil that our lesser reserves can't handle. It seems unlikely that we'll see a disription of this sort, thus the impact of his actions here are probably minimal. We might get 25 bps or so in GDP from it or possibly very small decreases in the unemployment rate.

Oil reserve not a stimulus.

The primary motivation is as Dano has [all]uded to above - purely political. This is the only stimulus Obama has left.

That's no stimulus. Its a ploy, as I said. Not meant as a stimulus.

Nonetheless, I agree he doesn't have any options - the GOP/TeaPurty is not interested in jobs or the economy so any bipartisan plan will have to wait for 18 months or so. Meanwhile underemployment is settled in for ~1/5 of our population and nothing is getting done to change that. But the wealthy are good, Wall St got what they wanted, and corporations are flush with cash, so what's the problem?

And we should be increasing the price of oil, not decreasing it. The faster we reduce our energy dependence on dirty energy, the better.

Best,

D

Strategic Oil Reserve Pandering

Prices already going down before this move. Just a political ploy.

Best,

D

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